Inflation and Life Insurance: How to Approach Your Coverage

In today’s economic climate, the impact of inflation on your financial plans needs to be considered – especially when it comes to long-term investments like life insurance.

Rising costs affect everything from your weekly grocery bill to the future value of your insurance protection. Over time, the amount you originally insured yourself for may not stretch as far. A payout that seems sufficient today might fall short in covering expenses down the track.

Data from NobleOak’s 2025 Life Insurance Pulse Report reveals that most Australians aren’t adjusting their life insurance in response to inflation:

• 88% of policyholders haven’t made any changes to their Life Insurance coverage due to inflation, although some were considering doing so
• Only 9% have increased their coverage amount, while 4% had decreased it
• Australians aged 55-60 are the most likely to have decreased their coverage or are considering doing so (24%, compared to 10% or less for other age groups)

Let’s explore how inflation and life insurance interact and what you can do to safeguard your policy’s value.

What is inflation?

Inflation is the general increase in prices and the corresponding decrease in purchasing power over time. In simple terms, $100 today will buy less in the future than it does now. When inflation runs at 3% annually (the RBA’s target rate), something that costs $100 today would cost about $181 in 20 years.

When it comes to financial planning, this means the money you set aside today — whether in savings, investments or insurance coverage – needs to account for this gradual decrease in value.

How inflation affects life insurance

The relationship between life insurance and inflation is straightforward but often overlooked. It’s all about how much your coverage amount will actually be worth in the future.

When you purchase a life insurance policy with a fixed sum (as opposed to one with inflation protection), you’re essentially locking in today’s dollars for a future payout. If you take out a policy which would pay out $500,000 today, your beneficiaries will receive a $500,000 payout in the future – let’s say in 20 years. But with an average inflation rate of 3% annually, $500,000 in 20 years will only have the buying power of around $277,000 today.  While the dollar amount ($500,000) remains the same, what those dollars can actually pay for — mortgage balances, living expenses, education costs – is much less. This means your beneficiaries might receive significantly less real value than you intended.

To guard against this, some Life Insurance policies offer inflation protection. Every year, your coverage amount will automatically increase to keep up with inflation, so that your loved ones will receive the value that you intended. In this case, premiums may also increase.

Ways that inflation can impact your life insurance policy

To make informed decisions about your coverage, it’s important to understand how life insurance inflation could affect your policy:

• Decreased real value of payouts: A $500,000 policy taken out today will only have the equivalent purchasing power of just $277,000 after 20 years of 3% inflation.
• Policy relevance: What you need from your Life Insurance changes over time. To keep on top of inflation, you may want to review your policy more often.

• Premium increases: Some policies offer inflation protection to account for inflation. With this type of protection, you’ll probably need to pay higher premiums, but you’ll have greater coverage over time.
• Changing cost of living: Without adjustments for inflation, your coverage may be insufficient to meet your family’s future needs. Plus, expenses like education, healthcare and housing tend to increase even faster than the general inflation rate. This means that there will be an even wider gap between what your loved ones might require and what coverage will provide.

How to take inflation into account in your life insurance

Inflation can chip away at the value of your coverage over time, but there are ways to ensure life insurance inflation protection. Here are some key strategies:

Indexation (inflation-proofing your policy)

NobleOak’s policies include an automatic indexation feature that increases how much you’re insured for each year. This adjustment typically follows the Consumer Price Index (CPI) or a 3% fixed percentage – whichever is higher. This guards against inflation and helps your coverage maintain its real value over time. You can turn this feature off if you wish year to year.

Indexation is effective for life Insurance inflation protection, but it also means you’ll pay higher premiums. As the sum you’re insured for rises each year, so does the cost of your policy. However, this trade-off can make financial sense when considering the alternative – coverage that gradually decreases in value.

Regular policy reviews

One of the most effective ways to manage life insurance inflation is to review your policy regularly — ideally every 2-3 years and after significant life events. During these reviews, take a look at your current financial obligations, future goals and the effects of inflation since your last adjustment.

As well as regularly scheduled check-ins, there are events when you should review your life insurance policy:

• Major life changes: You might need more coverage if you get married, have children, buy a home or advance in your career.
• Inflation check-ins: When inflation is high, you should check that your coverage is keeping up with living expenses. Remember that some costs — like education and healthcare — typically rise faster than the general inflation rate.
• Financial milestone reviews: As you pay off debts and build up your savings, you may need less insurance coverage.

Managing premium costs

When it comes to managing Life Insurance and inflation, there’s a balance between adequate coverage and affordable premiums. As living expenses rise, it’s important to make sure your policy keeps up without becoming too expensive.

Let’s unpack some ways to deal with inflation and life insurance:

• Selective increases: You can accept indexation increases every few years instead of annually. This means you’ll still be addressing inflation while managing your premium costs.
• Coverage reassessment: As you pay down your mortgage, you might be able to reduce your coverage and premium costs to focus on quality-of-life protection rather than debt coverage.
• Multi-policy optimisation: Review all of your insurance policies – including any provided through your super – to spot any overlaps. You might be doubling up on premiums for income protection or TPD coverage.

Does NobleOak offer policies with built-in inflation protection?

Yes, NobleOak policies include built-in inflation protection through indexation. This feature automatically increases your sum insured each year to keep pace with inflation, so that your coverage remains relevant over time. Policyholders also have the flexibility to opt out of indexation if they prefer to maintain steady premium costs.

Award-winning life insurance 

Ready to review your life insurance needs? NobleOak is an award-winning life insurer known for offering high-quality cover with competitive premiums. Recognised for outstanding service and customer satisfaction, we provide fully underwritten life insurance that’s tailored to your needs.

Get a quote today or call our friendly team on 1300 041 494 for advice.

Any financial product advice is general in nature only and does not take into account your individual circumstances, objectives, financial situation, or needs. Before acting on it, please consider the appropriateness of the information, having regard to those factors. Any third party websites or tools referred to are subject to their own terms and conditions and NobleOak Life Limited makes no representation or warranty as to any information on those websites. Persons deciding whether to acquire or continue to hold Life Insurance issued by NobleOak Life Limited should consider the relevant Product Disclosure Statement and Target Market Determination for the product. NobleOak Life Limited ABN 85 087 648 708 AFSL 247302.